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The Only Chart That Matters

Sometimes my own colleagues get tired of my rant about the U.S. Dollar Index, however, the dollar chart seems to be the most important chart in the market for quite some time now. Nearly every morning I write about the U.S. Dollar Index which measures the performance of the U.S. Dollar against the Euro(57.6%), Yen(13.6%), British Pound(11.9%), Canadian Dollar(9.1%), Swedish Krona(4.2%), and the Swiss Franc(3.6%). Simply put when the U.S. Dollar Index is trading higher the stock markets in the United States and around the world simply decline or deflate. The opposite is true when the U.S. Dollar Index declines the global stock indexes will generally trade higher or inflate. Therefore, the U.S. Dollar Index chart is one of the most important charts in play right now.

The other important factor to remember about the U.S. Dollar is most commodities will trade in dollars. As you may already know commodities are very inflationary for this very reason. Therefore, stocks such as Southern Copper Corp.(NYSE:SCCO), and AK Steel Holdings Corp.(NYSE:AKS), will generally catch a bid when the U.S. Dollar Index declines or sells off. Often oil and energy stocks will trade higher should the U.S. Dollar declines or trades lower. Oil also trades in U.S. Dollars and British Pound.

In a time when the U.S. Treasury and the Federal Reserve Bank are working very hard to inflate the markets back to health the U.S. Dollar Index holds most of the clues for major market moves. If you look at the stock market rally in 2009 it was really because of the decline in the U.S. Dollar Index. Please remember that U.S. consumers that are on fixed incomes really feel the pain when the U.S. Dollar Index declines. The U.S. Dollar will buy them less goods and the goods that they need to survive will increase in price. Therefore, while a weak dollar looks like a positive for the stock market it a negative for the people. Keep a close eye on the dollar as it seems to be the only chart that matters at this time.

Nicholas Santiago
Chief Market Strategist